CHAPTER 4: HOMEBUYER ACTIVITIES

Homebuyers may use NAHTF funds for acquisition only, acquisition/rehabilitation or new construction of homes. Site improvements are also an eligible activity for the NAHTF. This chapter covers the kinds of assistance that may be provided to homebuyers, eligibility criteria, and how NAHTF funds may be used.

WARNING: The NAHTF Administration Manual contains information on eligible uses and requirements of NAHTF funds as general guidance. However, the Department further defines eligible uses and requirements for NAHTF funds administered by the Department via the Housing and Community Development Annual Action Plan, NAHP Application Guidelines and the NAHTF Program Contract. Applicants and grantees must adhere to the requirements imposed on NAHTF funds for the particular program year and specific award.

NAHTF PROGRAM REQUIREMENTS

The chapter covers the kinds of NAHTF assistance that may be provided to homebuyers, eligibility criteria and long-term affordability. A summary of the key homebuyer rules and how to document compliance with the requirements of these rules is provided as Attachment 1.

ELIGIBLE ACTIVITIES

Homebuyer programs can be structured in any number of ways to encourage the acquisition, acquisition and rehabilitation, or the new construction of affordable homes. Program design will be guided mainly by community needs and the local housing market.

Acquisition:

  • The grantee can help eligible homebuyers purchase affordable homes by providing downpayment or closing cost assistance, or by reducing the monthly carrying costs of a loan from a private lender.
  • This approach to homeownership is best used in areas where an adequate supply of housing exists and where a grant or loan can make housing affordable to low-income households.

Acquisition and rehabilitation: NAHTF funds can also be used to fund rehabilitation activities. In areas where there is insufficient standard housing, the agency may want to incorporate a rehabilitation component into its homebuyer program. In this case, there are two acceptable approaches.

  • The grantee might acquire and rehabilitate, or assist a developer to acquire and rehabilitate, substandard properties to be sold after rehabilitation to low-income purchasers.
  • As an alternative, the grantee might provide assistance directly to the homebuyer to perform the rehabilitation after the purchase. In such programs, the grantee will often offer rehabilitation loans in addition to, or instead of, the downpayment and closing cost assistance discussed above under "acquisition."

New construction:

  • In areas where there is an insufficient supply of appropriate housing, the grantee may want to provide subsidies to stimulate construction of new housing.
  • The grantee may develop housing itself or may work directly with developers to construct this housing. Another option is to provide NAHTF funds to other organizations or individuals to contract for the construction.

Site improvements: Site preparation and Infrastructure necessary for the development of affordable housing is an allowable activity.

  • Site preparation includes demolition, clearance and dirt work activities.
  • Infrastructure includes sidewalks, utility connections, streets and sewer and water lines.

Qualifications regarding the funding of site improvements:

  • The Department would prefer to fund housing construction and direct homebuyer assistance rather than site improvements.
  • The NAHTF used to fund site improvements must benefit only NAHTF-eligible beneficiaries (in other words those costs must be tied to NAHTF-eligible properties and figure into the assistance provided to produce affordable housing).
  • Site improvements are never stand-alone activities. Thirty-six months following completion of site improvement activities, properties meeting NAHTF requirements must be constructed and occupied.

Lease-purchase: A lease-purchase option may be used in conjunction with a homebuyer program.

  • Ownership must be conveyed to an eligible homebuyer within 36 months of signing the lease-purchase agreement, or within 42 months of project completion.
  • If at the end of the 36-month period, the household occupying the lease-purchase unit is not eligible or able to purchase the unit, the agency has an additional six months to identify an eligible homebuyer to purchase the unit.
  • If lease-purchase housing is not conveyed within 36 months of signing the lease
    purchase agreement or within 42 months of project completion, the project becomes
    a NAHTF rental project subject to NAHTF rental rules.
  • The homebuyer must qualify as a low-income family at the time the lease-purchase agreement is signed.
  • Lease-purchase arrangements can assist households at the lower end of the income range by helping them to accumulate a downpayment while they build their "ownership skills."

Rental to Homeownership: NAHTF-assisted rental units may be converted to homeownership units with or without the use of additional NAHTF funds by having the owner of the rental units sell, donate or otherwise convey the units to the existing tenants.

  • If additional NAHTF funds are used to help the tenants become homeowners, the minimum period of affordability is the affordability period required by the amount of direct homeownership assistance provided.
  • If no additional NAHTF funds are used, the homeownership units are subject to the resale provisions and to a minimum period of affordability equal to the remaining affordability period that would apply if the units continued as rental units.

FORMS OF FINANCIAL ASSISTANCE

Generally, for homebuyer assistance programs, grantees will use the following forms of
assistance:

  • Grants;
  • Deferred-payment loans; and
  • Below-market-rate loans.

The pros and cons of the subsidy approaches are provided in Attachment 2.

In determining the forms of assistance, the agency should consider the particular needs of the program's target participants. The following list discusses alternative designs for homebuyer programs and the appropriate forms of assistance.

Downpayment and closing-cost assistance: For many potential homebuyers, the biggest barrier to homeownership is the downpayment and closing costs. While they may have a steady income that would allow them to make monthly payments, they do not have the means to save for the upfront costs of purchasing a home. In these cases, NAHTF funds can be provided in the form of a grant or a deferred-payment loan. When deciding whether to use grants or deferred-payment loans, consider the factors listed in Attachment 2.

Gap financing: Other homebuyers may have a steady income that is insufficient to cover the total monthly payment. In this case, NAHTF funds can be used to reduce monthly carrying costs by providing gap financing.

  • The most efficient way to reduce the size of the monthly payment is to provide the homebuyer a grant or a loan (deferred-payment or below-market interest) to reduce the principal amount that he or she must borrow. (However, the grantee may also consider an "interest buydown" --providing funds directly to the lender to reduce the interest rate on the borrower's loan.)
  • The gap financing, if provided as a loan, can be paid in small monthly installments (for a below-market-rate loan) or at the sale of the property (if a deferred-payment loan).

Development subsidy: Another way to reduce the homebuyer's monthly housing costs is to use NAHTF funds to reduce the gap between the cost to develop housing and the market price. If the NAHTF program provides a developer a subsidy, the developer can then offer the home at a lower sales price that presents a lower burden to low-income homebuyers. The development subsidy is generally a grant to the developer.

ELIGIBLE COSTS

NAHTF-ELIGIBLE HOMEBUYER COSTS

HARD COSTS

  • Acquisition of land and existing structures
  • Site preparation or improvement, including demolition
  • Securing buildings
  • Construction materials and labor

SOFT COSTS

  • Financing fees
  • Credit reports
  • Title binders and insurance
  • Surety fees
  • Recordation fees, transactions taxes
  • Legal and accounting fees, including cost certification
  • Appraisals
  • Architectural/engineering fees, including specifications and job progress inspections
  • Environmental investigations
  • Builders' or developers' fees
  • Affirmative marketing and marketing costs
  • Homebuyer counseling provided to purchasers of NAHTF-assisted housing
  • Management fees
  • Fees paid to real estate agents

RELOCATION COSTS

  • Replacement housing, moving costs and out-of-pocket expenses
  • Advisory services
  • Staff and overhead related to relocation assistance and services

ELIGIBLE PROPERTY TYPES

Eligible property types include any property that will serve as the purchaser's principal residence, including:

  • A one-unit single-family property;
  • A two-to-four-unit single-family property;

If NAHTF funds are used to assist a purchaser to acquire one unit in a two-to-four-unit rental property and that unit will be the principal residence of the purchaser, the long-term affordability requirements apply to the assisted ownership unit only.

  • A condominium unit;
  • A manufactured home.

At the time of project completion, the manufactured housing must be connected to permanent utility hook-ups.

The manufactured housing must be located on land that is owned by the manufactured housing unit owner.

The Nebraska Affordable Housing Program considers a Manufactured Home to be a factory-built structure which is to be used as a place for human habitation, which is not constructed or equipped with a permanent hitch or other device allowing it to be moved other than to a permanent site, which does not have permanently attached to its body or frame any wheels or axles, and which bears a label certifying that it was built in compliance with National Manufactured Home Construction and Safety Standards, 24 C.F.R. 3280 et seq., promulgated by the United States Department of Housing and Urban Development, and is taxed as real property.

The Nebraska Affordable Housing Program considers a Mobile Home to be a housing unit constructed off-site that does not meet the definition of a Manufactured Home.

MAXIMUM PROPERTY VALUE

To use NAHTF funds, the value of the NAHTF assisted property must not exceed 95 percent of the median purchase price for the area, as published by HUD. The figures are published by FHA for its 203(b) program. A link to the current limits is provided at the Department’s website.

Acquisition only: In the case of property that does not require rehabilitation, the sales price of the NAHTF property to be acquired by a homebuyer may not have a value that exceeds the applicable 203(b) limit.

Acquisition and rehabilitation: If rehabilitation is required, the value of the property after rehabilitation may not exceed the applicable 203(b) limit. The after-rehabilitation value estimate must be completed prior to investment of NAHTF funds.

DETERMINING AFTER-REHABILITATION VALUE

The process for determining the after-rehabilitation value for a NAHTF-assisted property is the same for properties rehabilitated by the existing homeowner as it is for properties purchased and rehabilitated by a new homebuyer. Grantees must use a reasonable method to determine property value. Acceptable methods include:

  • An estimate of value performed by the grantee;
  • An appraisal performed by a licensed fee appraiser; or
  • A tax assessment of a comparable, standard property, if current and computed for 100 percent of the after-rehabilitation value.

These methods are discussed further in Chapter 3 - Homeowner Rehabilitation, under the section on "Maximum Property Value."

PROPERTY STANDARDS

Meeting the appropriate codes: As with all NAHTF-assisted properties, homebuyer properties must meet certain written standards. This section discusses these standards briefly.

  • Acquisition: If no rehabilitation is planned or if construction work began prior to the submittal of the project’s application to the Department, the housing acquired must meet local housing quality standards and code requirements. If no such standards or codes apply, the property must meet Section 8 HQS.
  • Acquisition and Rehabilitation: Housing that is being rehabilitated after the submittal of the project’s application to the Department must meet the Department’s Rehabilitation Standards (for rehabilitation projects) and all applicable local codes and zoning ordinances. If no local codes apply, the property must meet a national model code (Uniform Building Code, National Building Code, Standard Building Code) or the Council of American Building Officials one- or two-family code or minimum property standards at 24 CFR 200.925 or 200.926.
  • New construction: Housing that is being constructed after the submittal of the project’s application to the Department must meet all applicable local codes and zoning ordinances. If no local codes apply, the property must meet a national model code (Uniform Building Code, National Building Code, Standard Building Code) or the Council of American Building Officials one- or two-family code or minimum property standards at 24 CFR 200.925 or 200.926. New construction must also meet the 2003 International Energy Conservation Code.

Accessibility: All assisted housing must meet the accessibility requirements of the Fair Housing Act and Section 504 of the Rehabilitation Act of 1973.

Housing Visitability: All ground floor units must be visitable to the maximum extent feasible, unless doing so would impose an undue financial burden on the project. A visitable design provides that new single-family homes, duplexes, and triplexes are more accessible and usable to persons with disabilities. Housing units built to visitable standards have features that allow a person using a wheelchair or other mobility device to visit without any special assistance, and are more easily modified should a resident need adaptations in the future.

The Department uses the Nebraska Assistive Technology Partnership definition of visitability:

The requirements include having at least one no-step/zero grade entrance with a 36” door into the unit’s main floor, minimum 32” clear space opening in interior doorways, minimum 36” wide hallways, a first floor bathroom which allows for wheelchair access (while maintaining privacy), reinforcement in bathroom walls to permit future installation of grab bars, and modification in the locations of light switches, electrical outlets and environmental controls.

Manufactured housing: Manufactured housing must meet the Manufactured Home Construction and Safety Standards established in 24 CFR Part 3280, which preempt state and local codes covering the same aspects of performance for such housing.

  • Grantees providing NAHTF assistance to install manufactured housing units must comply with applicable state and local laws or codes. In the absence of such laws or codes, the agency must comply with the manufacturer's written instructions for installation of the manufactured housing units.
  • Manufactured housing that is rehabilitated with NAHTF funds must meet the requirements outlined above that apply to all housing constructed or rehabilitated with NAHTF funds.

Timing: All codes and standards must be met at the time of occupancy, except when the project involves acquisition and rehabilitation by the homebuyer. If the assisted homeowner is acquiring and rehabilitating a home with NAHTF funds:

  • The grantee must inspect the property prior to occupancy for health and safety defects. The property must be free from any defects that pose a danger to the health and safety of occupants before occupancy and not later than six months after property transfer.
  • The grantee must inspect the property again at project completion. The property must meet the Department’s Rehabilitation Standards and local codes and ordinances (or a model code if no local code) at project completion, and within two years of property transfer to the owner.

LEAD-BASED PAINT

HUD's new consolidated Federal lead-based paint regulation took affect September 15, 2000. This regulation makes several important changes in the requirements for federal community development programs that fund housing. The Department requires all homebuyer programs to incorporate the HUD regulation on controlling lead-based paint hazards in housing receiving federal-assistance (24 CFR Part 35), unless the grantee requests and approves an amended version of these regulations on a project-by-project basis (see Chapter 2 – Administrative Overview for further information). Subparts J and K of the regulation provides guidance on meeting lead-based paint requirements for homebuyer assistance programs.

THE APPLICANT/ BENEFICIARY

To be eligible for NAHTF funds, the prospective purchaser must:

  • Be low-income; that is, with an annual (gross) income that does not exceed 100 percent of median for the area; and
  • Occupy the property as a principal residence.

INCOME ELIGIBILITY REQUIREMENTS

The purchasing household must be low-income at either:

  • In the case of a contract to purchase existing housing, at the time of purchase;
  • In the case of a contract to purchase housing to be constructed, at the time the contract is signed; and
  • In the case of a lease-purchase agreement (for existing housing or housing to be constructed), at the time the lease-purchase agreement is signed.

The Department requires grantees to use the Annual (Gross) Income definition found at 24 CFR Part 5.609 (also referred to as the Section 8 method) to determine applicant income eligibility. Eligibility is based on anticipated income during the next 12 months. A detailed explanation of the Annual (Gross) Income definition can also be found in the “Technical Guide for Determining Income and Allowances for the HOME Program” on pages 11-31 of the publication.

The NAHTF Program allows grantees to use two forms of verification for the Annual (Gross) Income basis of determining income eligibility. These forms are third party verification and review of source documents.

Third Party Verification

Third Party Verification is the preferred method of verification in most instances, because a review of documents often does not provide needed information. For example, an employed applicant’s pay stubs may not provide sufficient information about the average number of hours worked, overtime, tips, bonuses and anticipated raises.

Under third party verification, a third party (e.g. employer, Social Security Administration, or public assistance agency) is contacted to provide information. Written requests and responses are preferred. However, to clarify or complete missing information on a written response, conversations with a third party are acceptable if documented through a memorandum to the file that documents the contact person, information conveyed and date of call.